To our valued business clients,
We are sure all of you have questions regarding the recent passing of the CARES ACT. We have composed the following synopsis of each of the programs with important information. Please let us know how we can help you get through this difficult and trying time. We will be more than glad to assist you through this process and answer your questions. Please also understand that the SBA and IRS will make adjustments to these as it is still early in the timeline.
There are four main components to the CARES ACT that will affect our business clients
Each of these areas have benefits to business owners and should be considered. When looking at these options it should be noted that the PPP and Payroll Tax Deferment are a one or the other choice. While the other two options are available to all.
Paycheck Protection Plan (PPP)
This will be the one plan that we will receive most of the requests for information as it had a possibility of being forgiven.
The PPP is loan program through the SBA and the amount of the loan is determined by payroll costs averaged over the past year. For new businesses it is based off of the average of January and February of 2020. The maximum amount of the loan is limited to 2.5 times payroll costs.
The portion that can be forgiven is based on two main factors; employee retention and maintaining salaries. The amount of the forgiveness is lowered should you not retain employees compared to the base amount. It is also reduced should the amount of payroll be smaller than the original payroll costs.
Should you not qualify for the forgiveness the loan becomes a 10 year, 4% loan.
Other points to consider:
Economic Injury Disaster Loan Program
This is a program through the SBA for loans up to Two Million. This is to help small businesses that have suffered loss of revenue due to the Covis-19 pandemic.
There is also an Advance of up to $10,000 for those that have a temporary loss of revenue and is approved within three days and does not have to be repaid.
Payroll Tax Deferment
Employers can defer payment for the employer portion of payroll taxes incurred between the date the CARES Act is enacted through December 31, 2020.
If deferred, the employer would instead pay 50% of this amount by December 31, 2021, and the remaining 50% by December 31, 2022. The eligible payroll taxes are the employer’s portion of Social Security taxes—6.2% of an employee’s wages.
Self-employed taxpayers can also defer the employer’s portion of Social Security taxes in the self-employment tax.
Employee Retention Credit
Eligible employers may claim a credit against Social Security taxes for each calendar quarter equal to 50% of qualified wages up to $10,000 per employee. If the credit for the quarter exceeds the employer’s Social Security tax liability, the excess is refunded.
Eligible employers operating a business during 2020 must have experienced either:
A partial or full suspension of the operation of their trade or business during the calendar quarter due to governmental orders that limited commerce, travel, or group meetings due to COVID-19
A significant decline in gross receipts from 2019
A significant decline begins with the quarter in which the gross receipts for the quarter were less than 50% of those in the same quarter in the prior calendar year. The decline ends with the quarter in which gross receipts are greater than 80% of the gross receipts for the same quarter in the prior calendar year.
Qualified wages for employers with 100 or fewer employees qualify for the entire credit. For employers with more than 100 employees, the wages eligible for the credit are the wages paid to employees who aren’t providing services due to circumstances described above.
Employers who take advantage of the payroll protection loan—Section 1102 of the act—aren’t eligible. Also, qualified wages don’t include amounts paid for the sick leave credit or The Family and Medical Leave Act (FMLA) credit enacted by HR 6201.
We hope this information has been helpful and look forward to discussing these with you as necessary.
The Partners of Midwest CPA LLC